Financials

Vashon Allied Arts (dba Vashon Center for the Arts) was recognized to be exempt from Federal income tax in March of 1966 as described in Internal Revenue Code Section 501(c)(3).

Our EIN number is 51-0183051.

This page was last updated: April 28, 2019

On April 29, 2019 we held a meeting of our members (and guests) in the Katherine L White Hall. Click THIS LINK for a transcript of the meeting, including slides. It has been lightly edited for clarity.

The meeting opened with some introductory remarks by our Board President, John de Groen and then followed with a performance by the cast of our spring musical, Willy Wonka Jr. The transcript picks up immediately after that and concludes before the questions and closing song by Kat Eggleston.

Following is the full financial report that is referenced in the transcript.

2018 Financial Information

Because the opening and operation of the new campus is such a big part of the story, we are presenting our 2018 financials in context with financial information from 2015 onward.

A little bit of history will help you follow the story inside the numbers.

2015

Last full year of operations before opening the new campus. Locations include Blue Heron, Heron’s Nest, and offsite finance office.

2016

New building opens in April. Additional staff hired.

2017

Longtime Executive Director retires; new Executive Director hired. Heron’s Nest closed at end of year. First full year operating full campus.

2018

Executive Director departs; New Executive Director hired in June.

Notes: The financial information from 2015 through 2016 has been audited. The financial information for 2017 and 2018 is currently being audited (as of 4/25/19). 2019 figures represent a budget rather than an actual report on performance.

VCA’s financial statements are constructed in accordance with GAAP (generally accepted accounting principles) and to facilitate both our annual audit and reporting to the IRS via form 990.

Summary

Vashon Center for the Arts is one of the very few multi-disciplinary arts organizations in the Pacific Northwest. Unlike any other organization we can find, we give equal attention and energy to five programming areas: Performing Arts, Visual Arts, Arts Education, Dance Education, and Artist Residencies.

The richness and breadth of our programming is a legacy of multiple decades of vision and hard work by countless members of our community. That same breadth of programming is also a driver of significant cost and complexity across our organization.

The opening of the new campus predictably led to a step-change increase in expense categories such as payroll, occupancy (facilities), and administrative costs. The expansion of program revenue, largely driven by our theater, added additional costs.

In the run-up to launching construction of our new building, the board and staff forecasted an operating deficit that would be covered in the near term by capital from the Katherine L White estate, and in later years by the creation of a permanent endowment (funded with capital from Ms White and other sources).

The expenses the organization has incurred since opening the new campus have trended higher than planned, and earned revenues have trended slightly lower than planned. The level of donations also dipped after the building opened, largely due to donor fatigue and a sense of “job well done.”

Note: These trends (higher than expected construction costs, higher than expected operating deficits, and donor fatigue) are completely consistent with what other organizations in the Pacific Northwest experienced over the same time period.

As you will see in the following pages, we are projecting an operating deficit of approximately $220k in 2019. As we have before, we will fund our operating deficit out of capital.

Just to state the obvious, we have three possible paths for closing our operating deficits: reduce expenses, increase earned revenues, increase contributed revenues.

Expense Management

As part of the 2019 budgeting process, the staff and board went through a rigorous examination of all our costs, resulting in trimming our “open to the public” hours and two staff positions. We also reduced planned spending in marketing, and held spending on facilities and operations nearly flat.

While it may be possible to find further marginal savings, any significant reduction in costs will require either 1) elimination of one or more mission-driven program areas, along with the related revenues; or 2) reduction in/elimination of a core business function. It is the view of the board and management that neither is a wise strategy at this time.

Program Growth

VCA’s income falls broadly into two categories: Earned and Contributed. We refer to earned revenue as “Program Service Revenue” on our financial statements. These revenues derive from the sale of tickets, tuition, and art, along with income from rental of our building and concession sales.

From 2015 through budget 2019, program revenue has growth from $587k (51% of total revenues) to a projected $721k (42% of projected revenues). This growth was mostly driven by our theater and secondarily by our education programs.

While the board and staff are actively exploring new programming ideas and formats, the most prudent near-term view is to assume single-digit growth in revenues and operating margins from our existing program areas.

We are challenged to rapidly increase revenues by a) the size of our catchment area (basically Vashon), b) the difficulty of attracting off-island guests, and c) the wealth of cultural and entertainment choices available on Vashon.

Given our mission-driven model and non-profit status, we typically pay a higher percentage of our revenues to artists, teachers, etc. than would be true in a commercial enterprise. It is difficult to envision a business model where earned revenues contribute more than half our total revenue needs.

Much has been written about the “ideal ratio” of earned to contributed revenues. The truth is, there is no such ratio across all categories of philanthropy or even arts and humanities organizations, given the variability in business models.

Having said that, 40% – 50% puts us in the range with similar organizations we are able to find. It is reasonable to assume our ratio of earned to contributed revenues will remain in the low to mid 40% range for the foreseeable future.

Growth in Contributions

The lifeblood of any arts organization is contributions, and as a subset of that category, contributions by individuals. This is true on Vashon, in the Pacific Northwest, indeed anywhere in the United States.

As you will see in the detail that follows, VCA requires about $2mm to operate its five program areas, maintain our campus, pay our bills and do our accounting, market what’s on offer, and raise the funds needed to meet our obligations.

The obvious strategy, and this is consistent with the strategy of every other arts and humanities organization in the United States, is to do two things: 1) raise current dollars from individuals, sponsors, and grantors, and 3) raise future dollars to fund an endowment.

To state the case simply, this means we must continue to raise in excess of $1.2 million every year. In the near term, those funds will need to come primarily from private donations, with lesser sums coming from business sponsorships, and grants.

Over a longer cycle, we are . . .

Actively supporting Cultural Access Washington‘s efforts to pass a ballot initiative that could provide significant new funding sources to organizations like VCA.

In the early stages of planning a capital campaign to raise an endowment.

Going Forward

All philanthropic organizations live at the intersection of three existential questions:

Would the community be well served if an organization like this existed (the question of mission)?

Is this particular organization up to the mission (the question of vision and strategy)?

Is the board and staff up to the task of delivering the mission (the question of plans and execution)?

To the first question: the VCA board and staff think there are many reasons to believe that a community alive with arts, artists, and cultural connoisseurs, wants and needs a large and vibrant multi-disciplinary arts organization.

To the second question: 2018 proved to be a year of rebooting, reimagining, and re-engaging with our community, a triad of ideas that continues in 2019. Our vision for the organization and strategy for bringing it to life gets clearer with every passing month.

To the third question: the past year has seen a significant turnover in both the board and the senior staff, all in service of bringing new energy and focus to the work of the organization. We believe that in every way, VCA is better fit to deliver its mission and to steward the financial and human resources required to do that.

Following is a more detailed discussion of our financial condition.

Income

Here is VCA’s income from 2015 through 2019 (budgeted).

Notes: Katherine White’s generosity went beyond helping fund our new campus. Her legacy gifts, in various forms, have helped support the ongoing operations of VCA as we began the process of learning how to operate a significantly larger and more complex organization.

Although not required under GAAP, we have separated out cash flows from Ms. White’s legacy gifts in the income statement contained in this document.

Actual

Actual

Actual

Actual

Budget

2015

2016

2017

2018

2019

Income

Direct Public Support

Membership

88,616

90,899

97,527

45,470

24,441

Fundraising

257,035

247,586

257,304

328,219

260,000

Grants

56,941

54,697

51,857

53,333

56,850

Other

95,117

133,814

207,984

651,398

663,493

Kay White Legacy

60,000

72,000

2,401,232

316,308

Total Public Support

557,709

598,996

3,015,904

1,394,728

1,004,784

Program Service Revenue

Tuition

313,714

338,322

363,635

374,452

360,501

Tickets

80,878

94,987

164,990

194,145

254,158

Art

189,417

242,446

171,752

56,588

66,500

Rental

0

50

10,518

23,122

16,575

Concession

3,536

5,782

14,518

20,988

23,600

Total Program Revenue

587,545

681,587

725,414

669,294

721,334

Other Income

6,135

4,602

3,636

10,326

750

Total Income

1,151,389

1,285,186

3,744,953

2,074,349

1,726,867

Income Notes

Following are some explanatory notes that will help you understand what’s going on in our income statement.

Membership

The significant drop-off in revenues from membership from 2017 to 2018 and beyond is partially a reflection of an actual decrease as well as a change in accounting practice to characterize any sums in excess of the core membership as a “donation.”

Fundraising Events

The biggest portion of our “fundraising events” line is our annual auction. The auction raises money for both general operations as well as scholarships. Scholarship funds are “restricted” and can create a difficult-to-follow accounting trail if you’re not used to looking at our financial statements. For clarity sake, we netted it out. The actual total goal, including $90,000 for scholarships, is $350,000.

Government Grants

These are monies raised for Vashon Artists in Schools as well as funds granted from King County via 4 Culture (mostly for unrestricted operating funds).

Other Contributions

In 2018 we raised in excess of $1 million from all “other” sources, which include sponsorships, business donations, and private donations. In order to build up capital reserves, we “restricted” a portion of those donated funds for release to our general operating accounts in 2019 and 2020. This is a practice we intend to continue.

Kay White Legacy

For a number of years during the capital campaign, VCA was permitted a draw from Kay’s Trust. Portions of these draws were retained in the accounts of the capital campaign and portions were released to our general operating accounts. The sums you see in 2016 ($60,000) and 2017 ($72,000) were the last two years of those distributions.

The $2.4 million in 2017 reflects the book value of the real estate VCA inherited that year, along with various financial assets.

The $316,000 in 2018 represents the value of various financial assets passed to VCA according to the terms of Kay’s estate.

There are additional assets from Kay’s estate that we carry on our balance sheet at a very low actuarial value.

Tuition

This includes Arts Education (including musical theater) and Vashon Center for Dance. The compound annual growth rate (CAGR) from 2015 through 2019 projected is 3%.

Ticket Sales

As you would hope, sales of tickets have grown since opening the Katherine L White Hall, from just over $80k to a projected $254,000, for a CAGR of 26%.

Art Sales

This is a very difficult line to unpick due to the closure of the Heron’s Nest at the end of 2017.

Facility Rentals

This includes rental of our stage to organizations like the Opera as well our atrium and other rooms to various community groups.

Expenses

The biggest story in our financials is the growth of expenses, almost all of which are associated with a) operating our larger campus, b) program growth, principally our theater.

Actual

Actual

Actual

Actual

Budget

2015

2016

2017

2018

2019

Expense

Grants

1,000

1,000

1,000

1,500

2,000

Compensation

567,508

829,491

1,040,470

1,169,077

1,143,089

Fees for Services

312,052

370,820

437,033

412,053

386,174

Marketing

65,579

66,341

83,816

106,235

60,931

Office

96,260

168,051

184,658

167,918

157,227

IT

9,258

13,530

20,138

28,869

14,240

Occupancy

50,712

125,525

116,670

132,006

116,374

Other

13,010

24,986

41,785

69,181

55,671

Payroll Expense

919

1,110

1,449

1,178

12,000

Total Expense

1,116,298

1,600,853

1,927,018

2,088,016

1,947,707

Expense Notes

Following are some explanatory notes that will help you understand what’s going on in our expense statement.

Employee Compensation

As is true of most non-profits, our largest single line item is employee compensation.

VCA employs 14.63 FTE across all parts of the organization, Programs, Facilities, Finance/Operations, Marketing, Development, and Admin. In any given year, the largest drivers of compensation costs are 1) organizational demands (what needs doing), 2) market conditions (what does it take to hire someone).

The 32% jump from 2015 and 2016 reflects two dynamics. The first is an increase in compensation costs due to addition of new positions associated with the new campus: Facilities Manager, Technical Director, and Front of House. A significant percentage of payroll costs was carried by the capital campaign until 2016, so migrating the full payroll costs back to the general operating account was also a continuing factor.

2017 was our first full year of operation in the new campus. Compensation increased another 20% due to at least three reasons: 1) Payroll associated with upgrading part time to full time positions (Facilities, Technical, Gallery, etc.), 2) increase in benefit costs (related to first point), 3) costs associated with search for and hiring new Executive Director.

Compensation costs rose another 11% in 2018 due to growth in program areas, the need to increase our finance/accounting staff, and costs associated with management transition.

In the early part of 2019, we reduced headcount by two people. At the same time, we made market adjustments for some positions.

The total compound annual growth rate of compensation from 2015 through budget 2019 is 15%.

Fees for Services

The second biggest expense category is what we pay to present our programs to our members, guests, and public. These are direct costs that move in relationship with the growth in program revenues. They do not include allocation for program staff costs or overhead.

It is our plan to fully allocate staff and overhead costs in the 2020 budget.

In 2015, fees for services were 53% of total program revenues, for a gross operating margin of 47%. Our margins compressed in 2017 (40%) and 2018 (38%); we are managing with the expectation to improve our margins to the mid 40% range.

Advertising and Promotion

Most, but not all marketing costs are included in this line item . . . others appear in Fees for Services. After remaining flat from 2015 through 2016, we increased spending in 2017, and then dramatically in 2018. 2019 Budgeted is in line with our historical average.

Office Expenses

This line includes costs associated with finance, administration, and development. The step-up between 2015 and 2016 is a function of two things: 1) Increased costs with running the new organization, 2) reabsorbing costs that had previously been allocated to the capital campaign. These costs have stabilized as can be seen by the relatively flat line connecting 2016 and 2019.

Information Technology

Expanding our campus brought with it a significant increase in IT costs which includes telephony, networking, internet access, and hardware. In 2019 we are undertaking moving the bulk of our network services from aging and non-secure premise-based servers to the cloud.

Occupancy

These are the costs directly associated with managing our campus, including taxes, insurance, maintenance and repairs, landscaping, cleaning, etc. We have successfully managed these costs since 2016.

Other Expenses

In our full P&L this is fully detailed. The two largest items are insurance and interest.

Payroll Expense

This is an artifact of our chart of accounts and refers to direct cost of outsourcing payroll services.